Do you have a lease being held by a shallow well
My family owns 652 acres in Benezette, PA. We leased our property to a company and they drilled a shallow well the last week of the lease. The well is dry and they have not attached it to a pipeline. The well was drilled to hold the lease for possible Marcellus and or Utica drilling. Is anyone else having this issue? If so, what can be done?
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Permalink Reply by Jack Straw on
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Elk County and the area around Benezette is God's country ... wild, rugged and beautiful.
As you doubtless know, 652 acres could host a number (4 or more) horizontal wells (with the potential to pay out "life changing" royalties).
Questions that come to mind:
How long ago was this well drilled?
How do you know that the shallow well is indeed dry, and not just awaiting the ability to be tied into a gathering line?
Drilling a shallow well to hold a large block of acreage is a slimy deal - I assume this lease was signed sometime like five years ago, before Landowners were able to educate themselves with respect to the tricks that could be pulled on them and the lease language necessary to protect them (vertical and horizontal Pugh clauses).
If the well is indeed dry and not capable of producing in commercial quantities, it should be possible to get out of the lease.
The exact wording of the lease is important.
Your situation, and the size of your Family's land holding justifies action.
It is my opinion that you need to consult a qualified local Attorney with O&G experience.
I would suggest that you join and cross post on the Elk County group; seeking out recommendations from people from that County.
I would seek out the local Penn State University Extension and ask if they can recommend Attorneys that they consider qualified to assist.
I would further suggest that you be pro-active and attempt to resolve the matter in a timely manner in hopes of forestalling any further tricks from the erstwhile lease holder; you do not want to be further tied up in any knots.
One size fits most.
Nothing I have stated should substitute for a consultation with a qualified Attorney with O&G experience.
All IMHO, and please let us know how things turn out ... we are here to learn.
JS
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Permalink Reply by Brian Powers on
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Dave -
The drilling records will be useful in determining the true status of this well. Was it drilled and abandoned without stimulation or testing?, junked and abandonded, as would be the case in a severe downhole mechanical failure that could not be fished nor rectified? There are a variety of reasons that a well might be drilled and not completed or tested.
Your lease should also specify the approximate depths or deepest formation(s) to be included in the unit. Some places I've worked have separate leases for shallow and deep horizons; a shallow well, especially a non productive or non- commercial well, doesn't always hold the rights to the deep zone(s).
An O&G attorney might also help you interpret your lease language.
good luck sorting this issue,
Brian
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Permalink Reply by Jack Straw on
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RE: "Your lease should also specify the approximate depths or deepest formation(s) to be included in the unit. Some places I've worked have separate leases for shallow and deep horizons; a shallow well, especially a non productive or non- commercial well, doesn't always hold the rights to the deep zone(s)."
Brian,
Unless you have seen some of the leases that have been presented to and signed by PA Landowners, you would be surprised at how few protections are typically afforded the Landowner; they are little changed from the leases associated with the shallow Bradford Sand drilling of the 1950's.
It is through sites such as this that landowners are only now learning what they need to know to protect their interests; and that is the minority who are sufficiently savvy to find this site.
Some of these leases are little more than one page of vague "boilerplate" that give the Grantee enormous latitude it what they can do.
And Landowners that are HBP are having lease Modifications shoved in front of them that are so one-sided that it would be laughable were it not serious.
Typically, a Landowner blithely signs (at their kitchen table) what has been presented to them unmodified. Sadly, there is often a reluctance on the part of a landowner to consult an Attorney.
Until the explosion of the Marcellus in the past several years, little was lost in signing such a lease; things have changed ... but the type of "boilerplate" lease initially placed in front of the average Landowner has changed too little.
All IMHO,
JS
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Permalink Reply by Jim Litwinowicz on
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Dave Jack gave lots of good advice. If this well is indeed dry and not capable of production you may have an out. But it may be shut in until a pipeline can be laid. Big difference. You need to have an experienced attorney read over the lease very carefully. Things like Pugh Clause, Unitization, shut in limits, need looked at. How long ago the well was drilled and capped off is important.
I was in Benezette to see the elk in Oct....gorgeous! My mother is from Emporium...love the area.
Good luck!
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Permalink Reply by Tony Yurina on -
I would provide a 60 day notice to the Lessee seeking the further completion of the well and further development requirements using registered mail. This is a very important step prior to starting any potential litigation. Either you or your attorney could perform this first step.
Seek a qualified experienced oil & gas attorney.
Any experienced attorney can assess your personal situation, provide options and you will have to decide from that point to halt or go forward.
The one page leases are heavily slanted in favor of the Lessee's and have brought forth through the courts a concept termed "implied covenants to develop the leasehold". There are many cases you can read about, search the internet and read, learn, understand and try to apply your specific situation.
Also research abandonment of oil wells.
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Permalink Reply by Jack Straw on
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Anthony, thank you very much for generously posting information concerning "implied covenants to develop the leasehold".
A search led me to the related issue “Implied Covenant of Further Exploration” and an interesting article:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1879461
(a free download).
Again thank you,
JS
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Permalink Reply by John Goold on
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You also need to be careful and do a little homework yourself. The courts and the legal system are just starting to define payable production which is generally required to hold a lease. Some attorneys will tell you there is payable production when there isn't so that they don't have to handle your case. There are a lot of attorneys looking for low hanging fruit and maybe even some that have been corrupted by oil companies. A well producing a small amount of oil and gas is generally not considered a producing well by Ohio courts at least if the lease doesn't spell it out. If a lease simply states that the lease is held as long as oil and or gas is produced the courts in Ohio at least are generally interpreting that as payable production meaning there must be enough production for the oil company to make a profit.
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Permalink Reply by Kevin Senich on
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Often the problem is not that attorneys are unwilling to handle a case, but rather that they have no ability to assess a case's merits. Ohio law is not well-developed as regards defining what is "production in paying quantities". In many cases, a mom and pop E&O has drilled a couple dozen or so shallow wells that produce a marginal amount of gas and/or oil; the operator puts no money into maintaining the wells, and mom and pop have been living off a thousand bucks per well "profit" for the last thirty years. Is this "production paying quantities" by legal definition? No one knows for sure. But the mom and pop is content with its definition of "profit", and not incidentally with the prospect assigning the deep rights it holds for a handsome sum when the time comes.
It will take a few landowners willing to file suit to establish the parameters of what constitutes "production in paying quantities" in Ohio. It will be a slow process because landowners, as a general rule, want somebody else to do that for them.
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Permalink Reply by John Goold on
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We actually have an attorney now that has won cases a lot like ours. What is common in our area is a lot of these wells were drilled in the late 70s or early 80s and produced payable amounts for about 10-15 years. They were then shut in in during part of the 90s and then started back up again when deep rights became important. There was no shut in fee paid during the 90s. A lot of these wells are producing less then $500 per year in oil and gas which translates over to royalties of only $3-$10 per month for the landowner. Wells do have maintenance requirements and have to be maintained and inspected for leaks etc. One of our wells for example produced around 100-200 mcf and maybe a barrel or two of oil every year and the other one produces about half that. The question that needs to be answered by the court is are these wells being operated for the little bit of gas produced or are they being operated to maintain control of the deep rights? I feel with a lot of these cases the unpaid shut in is going to make a lot of these leases void but the oil companies holding these leases are going to get what they can out of this situation. I see a lot of settlements being paid by the landowner to the oil company just to stop the litigation or the oil companies having to sweeten the deal with bonuses and competitive leases to be able to hold the deep rights. The point is don't give up just because an attorney says he can't help you. It doesn't always mean that the case is impossible it may actually mean he doesn't want the protracted litigation or he may prefer to deal with the oil company holding your oil and gas rights rather then you.
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Leases are all different, so your questions are difficult to answer specifically. Your lease probably has a commencement date for drilling. This may be what you refer to by "last week of the lease". That commencement date may or may not be the same as the date of expiration of the primary term of the lease. Generally, rights are held past the end of the primary term only if the well is a producing well. Again, your lease may say differently. O&G rights obviously cannot be "held by production" past a primary term with a dry well, so you may have an out from your lease. You will have to consult an attorney. But, yes, a lot of people have this kind of problem. A local attorney experienced in O&G law will know what to do about it.
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For what it's worth, Penn State is conducting a meeting for landowners with conventional leases on February 6 in Venango County - a good distance away. Probably not direct answers to your lease situation (as noted above, every lease if different), but a lot of good information (I am one of the presenters, so I'm boasting here). We also have a couple experienced attorneys coming to do Q&A. It cost $10 - you can find info. on the Penn State Nat. Gas website or call the Venango County Extension Office.
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Permalink Reply by Jim Litwinowicz on
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My mother's family lived on Allegheny Ave....loved going to Luigi's as a kid. Miss their hoagies. Bought some in town in Oct and was disappointed as they used hotdog buns!
If you contact the people from Penn State, they may be able to point you in the right direction since they just had a seminar on such issues. Let us knw how things work out.
Good luck!
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